U.S. Loses Appeal On Steel Tariffs

The World Trade Organization issued a final ruling yesterday that the steel tariffs imposed by President Bush violate international trade rules, raising expectations that the White House will soon repeal the tariffs to avoid imminent European retaliation.

The WTO decision gives the European Union and several other countries the right to impose retaliatory tariffs on billions of dollars worth of American exports unless Bush reverses the decision he made in March 2002 to give American steelmakers protection from imports. Such sanctions could be the largest ever applied in a WTO case.

That leaves Bush with an unpleasant political choice less than a year before the next presidential election. If he abides by the WTO ruling and rolls back the steel tariffs, he would anger voters in key steelmaking states such as Pennsylvania, Ohio and West Virginia. But if he maintains the tariffs, he would risk angering industries in other states that would be hurt by the retaliatory duties. The EU's list of targeted products includes many that were clearly chosen for their political impact: Tariffs on citrus fruit, for example, would hit the pocketbooks of voters in Florida, and the duties on textiles would hit industries based in the Carolinas.

White House spokesman Scott McClellan said Bush has not yet made a decision. But sources close to the White House say the administration's economic team has united in imploring Bush to scrap the tariffs rather than let them stay in effect until their scheduled expiration in March 2005. Perhaps more important, one source said, Karl Rove, the president's top political adviser, now believes the tariffs have cost Bush more political support among steel-using industries and conservative free-trade advocates than the political goodwill he gained from their imposition.

"Rove has agreed they should come down," said the source, who spoke on the condition of anonymity.

U.S. industries that use steel, such as makers of appliances and autos, have also been pressing for a repeal of the tariffs, complaining that higher steel prices are eroding their profits amid a generally tough environment for American manufacturing.

If the steel tariffs remain in place, the EU would add to many American exporters' woes by imposing punitive duties ranging from 8 to 30 percent, starting in mid-December, on $2.2 billion worth of American goods, including motorcycles, citrus fruit, textiles and farm equipment. Seven other countries backing the EU case -- Japan, South Korea, China, Brazil, Switzerland, Norway and New Zealand -- could impose additional sanctions.

The ruling by a WTO appeals panel affirmed an earlier finding by the Geneva-based body against the tariffs. When Bush imposed the tariffs, which ranged up to 30 percent, in March 2002, he said he was giving U.S. steelmakers three years to restructure under a law that allows "safeguard" tariffs for industries facing a surge of imports. But the EU and its allies filed complaints asserting that the United States failed to provide evidence of a recent surge in steel imports, and the WTO agreed.

Richard Mills, a spokesman for U.S. Trade Representative Robert B. Zoellick, said in a statement that the Bush administration disagreed with the panel's ruling, but he did not hint at how it would respond.

Administration sources have said that Zoellick and other administration economic advisers agree that the steel tariffs should be terminated, in part because of the pain they are inflicting on other manufacturers but also because of the damage done to Washington's international standing as a champion of free trade.

The White House has also failed to reap some of the political benefits it hoped to get from the tariffs; the United Steelworkers of America has endorsed Rep. Richard A. Gephardt (Mo.) for president and issued a statement saying any of the Democratic candidates would be preferable to "the reactionary policies of the current administration."

Bush has about a month to decide before the retaliatory tariffs are to go into effect under WTO rules. The European trade commissioner, Pascal Lamy, said earlier this month that there is a "racing certainty" Brussels will exercise its right to retaliate by Dec. 15 unless Bush backs down. Economists close to the White House were somewhat puzzled that Bush made no decision on the tariffs before the WTO ruling, which was long expected. Now, said one former White House official, a decision to lift the tariffs could look like Bush is caving in to Europe.

Indeed, steel industry executives and union officials played on that concern yesterday.

"The [WTO] decision undoubtedly confronts Mr. Bush with a test of wills: Will he exercise his sovereign right as president to protect the jobs and survival of the entire American steel industry, or will he knuckle under to the threat of economic blackmail being leveled by the European Union?" asked Leo W. Gerard, international president of the United Steelworkers.

Terrence Straub, U.S. Steel Corp.'s chief Washington representative, said he has no idea what Bush will decide but noted: "This is a guy who doesn't react well to threats. The EU rattling its sabers . . . is not a productive exercise from their point of view."

One White House source said administration aides did debate whether to lift the tariffs before the decision to "look like we're not kowtowing" to Europe. But the aides decided it would be better to wait for the WTO ruling, then argue that they had tried their hardest to maintain the tariffs but must now abide by the legal ruling of a trade body they fully support.

That line was quickly adopted by some top Republicans on Capitol Hill, such as Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), who called on Bush to lift the tariffs, not just to comply with the ruling but to help beleaguered manufacturers.

"Although I may not agree with every decision at the WTO, it's important that we comply when decisions go against us," Grassley said. "Complying with our WTO obligations is an important sign of American leadership."

But others on the Hill saw the ruling as grounds to raise new questions about the WTO, underscoring how the steel case has thrust the trade body into one of the most politically charged controversies in its eight-year history. "The WTO decision further endangers support in the United States for the WTO and its dispute-settlement system," said Rep. Sander M. Levin (D-Mich.), the ranking Democrat on the House Ways and Means subcommittee on trade.

The steel decision comes at a time transatlantic trade tensions are rising concerning another dispute involving U.S. export subsidies, which the WTO also found illegal. In that case, the WTO has authorized the EU to impose up to $4 billion worth of sanctions, which would be by far the largest in WTO history. But Brussels has held off on imposing them -- its latest deadline is March 2004 -- pending passage in Congress of new tax legislation that would eliminate the subsidies.